Out-of-Stock: These are the losses
resulting from having demand for a particular variety of a product,
but not physically having it on hand. This loss is severely
aggravated by variety, and attempts to alleviate its effects by
increasing products on hand exposes those additional products to all
the losses enumerated below.
Seasonal: These are the losses resulting from having
stock on hand at the time when consumer demand drops (e.g.,
Christmas, end of summer, ...). This kind of loss has a
predictable time of initiation. Event based products
(e.g., Christmas, Halloween, Mothers' Day, ...) tend to be
associated with sharp drops in demand, whereas, seasonal
demand tends to have gradual demand drops. Retailers who
compete on variety and the distributors who serve them will
experience losses due to having many small lots left over.
Fad: These losses result from consumer changes
in taste, and are intended to be distinct from cyclical losses.
In general, the timing (and the extent) of these losses is hard
to predict. To discount these particular losses, it is
common practice to charge higher retail prices for "Fad"
products (i.e., those varieties which might experience these
kind of losses, albeit to an unpredictable extent).
Advances: These losses occur (especially in a
rapidly advancing industries such as the computer industry)
when a new model or a lower price is announced and offered.
The effect is to force the kind of demand drop-off that occurs
under fad decay except that the tolerance for higher retail
prices is often low.
Quantization: These losses result from not
having the benefit of aggregation of large quantities by
which retailers, and to a much lesser extent distributors,
can smooth demand and thereby avoid being stuck with a
large number of small lots. These losses are the consequence
of increased variety of products and the proliferation of
Coordination: These are the losses represented
in larger fixed costs (administration, equipment, space,
training, and quality of personnel) necessary to manage,
promote, and service the increased complexity that
accompanies creased variety.
Miscellaneous (Spoilage, Warranty, Governmental,
Theft, ...): These kinds of losses, generally,
are not a direct consequence of variety. However, to
the extent increased variety results in larger inventories,
there is a corresponding increase in the vulnerability of
that inventory to these kinds of losses.